REGIONAL INTEGRATION: ASIA
BUILDING ON RESILIENCE
Konstantin Limitovskiy, Asian Infrastructure Investment Bank (AIIB) Vice President of Investment Operations (Region 2), shares his insights on how boosting investments in human capital and strengthening policy frameworks can help drive regional integration in Asia.
OPEC Fund Quarterly: Why is regional integration important to development? Konstantin Limitovskiy: The world, including many Asian economies, has benefited from globalization of production. For developing economies, participation in global value chains is a path towards economic growth and modernization. For developed economies, production sharing keeps the cost of production low and allows them to reach the rising markets in emerging economies. Such integration supports cross-border investments, facilitating transfer of capital and knowledge. These have very positive effects on workforce and firm productivity. But markets alone cannot drive
integration. For developing economies, the right infrastructure, regulatory systems and policy frameworks also must be in place to maximize the potential benefits. Cross-border connectivity is a case in point. The right investments will not only benefit the communities in which they are located, but also will have far-reaching, positive impacts on markets and trade across the region. No country in the past five decades has been able to maintain high levels of economic growth and improve the living standards of its citizens without increasing integration with the global economy. It is also important to note the recent
stagnation in the participation in global value chains, which poses a risk to future growth as many countries are focused
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on grappling with the economic fall-out from the COVID-19 pandemic.
OFQ: Which areas of the world face the biggest challenges in terms of regional integration? Konstantin Limitovskiy: Generally, “landlocked” Asian countries or inland regions stand to benefit the most from regional connectivity. According to the OECD and recent industry studies, the large connectivity investments planned in Central Asian, MENA and South East Asian countries – together with foreseeable improvements in border custom procedures – have the potential to increase connectivity to foreign markets from five to 11 percent. And with higher trade volumes and higher productivity, this can result in a potential
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for economic growth that ranges between one and 11 percent. Yet integration is not just about
physical connections. Policy matters too. Many studies have shown that non-tariff measures prevent further integration of regional economies. Without trade facilitation, there will be little use of more ports or cross-border highways. Integrating economies is a difficult exercise of policy coordination, but progress can be made. The recent Regional Comprehensive Economic Pact Partnership and EU- China Comprehensive Agreement on Investment are exciting initiatives towards the right direction. These will open up more space for foreign direct investment and cross-border infrastructure development.
Most studies point to the potential of machines and workers
complementing each other, providing the right investment on human capital is made. Investment into digital
infrastructure is becoming ever more critical, and AIIB will prioritize this.
Konstantin Limitovskiy PHOTO: AIIB
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